Gold Price Rebounds on PCE Tailwinds...Interest Rate Hike Probability 'Drops' to 38%

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Gold prices have successfully rebounded as the U.S. Personal Consumption Expenditures (PCE) price index showed signs of slowing down. As the probability of an additional interest rate hike by the Federal Reserve (Fed) in October sharply decreased, buying interest is flowing back into the gold market, which has confirmed a short-term bottom.

FXLeaders, a foreign exchange and commodities analysis media outlet, reported on October 1st that spot gold prices rebounded from the $4,123 support level and recovered to the $4,189 mark. The explanation is that the lower-than-expected PCE index acted as the first major savior for the gold market. As inflationary pressures eased, the probability of a Fed rate hike in October, which the financial markets had been anticipating, significantly dropped from over 70% to approximately 38%.

Throughout September, the gold market plummeted by about 7% amidst surging U.S. Treasury yields and concerns about prolonged high interest rates, halting its multi-month winning streak. However, analysts suggest that the stabilization of inflation data stimulated buying sentiment in an oversold market after a sharp correction. Chief market analyst Arslan Ali Butt diagnosed that selling pressure is gradually subsiding as the Relative Strength Index (RSI) rebounded to around 55, returning to the midline.

However, there are still many hurdles to overcome before a trend-driven surge. The U.S. Dollar Index remains near its two-month high, suppressing the upside of gold prices. Although expectations for the Fed's hawkish tightening have somewhat receded, a clear reversal of dollar weakness has not been confirmed in the foreign exchange market. Therefore, the rebound in gold prices is expected to unfold gradually rather than explosively. The continued high trajectory of U.S. Treasury yields also remains a major headwind for gold, which is a non-yielding asset.

From a technical perspective, $4,192 was identified as the primary recovery test level. This zone corresponds to the long-term Fibonacci 50% retracement resistance. If it breaks through this level, upside targets of $4,223, $4,246, and even $4,314 become open. Conversely, if the $4,185 support level breaks, there is a high probability of reverting to a bearish phase, retesting the previous low of $4,123.

Driven by slowing inflation and a decrease in interest rate hike probabilities, the gold market has shaken off the nightmare of September and found some breathing room. Market attention is focused on whether gold can overcome the obstacle of a strong dollar and break above the $4,192 resistance level, successfully achieving a trend reversal in October.

[Key Article Summary]

-With the slowdown in U.S. PCE inflation, the probability of a Fed rate hike in October sharply dropped from the 70s to 38%, causing gold prices to rebound from $4,123.

-Despite a 7% plunge in September, the Relative Strength Index (RSI) recovered to 55, but the strong dollar, at a two-month high, is limiting the upside.

-Whether gold breaks through the primary resistance levels of $4,192 and $4,223 will be crucial for a sustained return to a bull market.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*